AOL Time Warner CEO Jerry Levin yesterday said his company is talking to DreamWorks about a wide-ranging partnership – one that sources say would include online distribution and equity stakes.

Speaking at the Salomon Smith Barney/Broadcasting & Cable “The Big Picture” conference, Levin hinted that the talks with the start-up studio were aimed at more than just the simple distribution deal most industry watchers had envisioned.

Sources said DreamWorks is talking about being roped into the AOL Time Warner fold by the offer of an equity stake and America Online distribution.

DreamWorks has been without an interactive unit ever since the flop of Pop, its entertainment Web site and virtual studio that went belly-up after plowing through millions in cash.

Insiders warned it is unlikely that DreamWorks is looking to sell the entire company.

One Hollywood insider close to the hitmakers insisted the three film titans “love running their own show.”

“AOL Time Warner can throw all the benefits they want at these guys, but in the end, they’re the owners – and that’s the way they want it,” the source said.

“I believe in the dynamics of the motion picture business,” Levin told the hundreds of investors and analysts at the media conference.

“Our friends at DreamWorks have done a superb job,” he went on, referring to the 6-year-old studio founded by Steven Spielberg, Jeffrey Katzenberg and David Geffen.

Moments later, Case chimed in with the news that the company is looking “for other ways to expand our presence – particularly our global presence – through investments, partnerships and internal growth.”

Levin refused to comment further on the DreamWorks talks – but he did hint that his retirement may not be too far in the future.

Levin, 62, reaffirmed his dedication to the world’s largest media and entertainment company but hinted that he would not kick and scream when his time came.

“You will not have to carry me out of AOL Time Warner,” he quipped. “I acknowledge change. It’s important to realize that when you reach a point – you should really turn it over.”

But Case quickly put to rest the notion that he would step into Levin’s shoes, insisting “I don’t believe I have what it takes to be CEO. I’m not a candidate.”

“We have enormous talent within this company,” Case continued, without naming names.

The negotiations between DreamWorks and AOL Time Warner for distribution have become Hollywood’s worst-kept secret.

DreamWorks is currently partners with Universal Studios – the now Vivendi-owned French media conglomerate that distributes DreamWorks’ Oscar-heavy slate of films.

But that deal is on shaky ground.

Vivendi Universal’s TV and film chief, Pierre Lescure, recently said Universal Studios is strong enough today to survive without the studio behind the past two big Oscar winners – “Gladiator” and “American Beauty.”

Lescure said he would not look to enter into a high-priced bidding war for the rights to distribute its pictures and AOL Time Warner looks ready to fill the gap – and more.

Insiders say the deal being ironed out has straight film and home video distribution as well as a heavy online component and equity stake.

Analysts say DreamWorks brings in about $1 billion in revenues – but it is unclear what kind of profits are generated. They say that while the film and animation studios are enjoying solid success – its music and television production operations have floundered.